Bank stocks, home sales boost Dow

By Charley Blaine and Elizabeth Strott

Wall Street must be relieved this afternoon. A dreadful sell-off in Asia and continuing weakness in Europe today had many U.S. traders worried about yet another slump for the markets.

Not so. At 2:15 p.m. ET, the Dow Jones industrials were up 104 points, or 1.3%, to 8,483. The Standard & Poor's 500 Index was up 5 points, or 0.6%, to 882. The Nasdaq Composite Index was up 9 points, or 0.6%, to 1,561..

Three catalysts were helping the market:

• Gains for regional banks after 14 lenders including SunTrust Banks (STI, news, msgs) accepted about $31 billion in government cash as the Treasury rolled out the second half of its $250 billion package to rescue the financial system. Huntington Bancshares (HBAN, news, msgs) was the leader among S&P 500 stocks, up 19.4% to $19.55.

• Better-than-expected earnings from telecom company and Dow component Verizon Communications (VZ, news, msgs), up 11.4% to $27.95. Verizon's gain added some 22 points to the Dow.

• A slightly better-than-expected Commerce Department report on new home sales. Home building shares were higher.

The laggards today have been steel and several technology stocks. U.S. Steel (X, news, msgs) was down 3.4% to $33.50. Microsoft (MSFT, news, msgs) was down 1.4% to $21.66. Google (GOOG, news, msgs) was off 0.5% to $337.50. (Microsoft is the publisher of MSN Money.)

Energy shares were coming back from lows this morning after crude rebounded after briefly dropping below $62 a barrel. At 2:15 p.m., crude in New York was at $64.48 a barrel, up 0.5% from Friday but down more than 56% from its peak of $147.27 a barrel in July.

ExxonMobil (XOM, news, msgs), which had been down 3.6% right after the open, was up 1.6% to $70.11.

Automakers were mostly lower because of concerns about the viability of Ford Motor (F, news, msgs), General Motors (GM, news, msgs) and Chrysler Group.

New home sales up on price cuts

New-home sales rose 2.7% from August to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from the August level.

The median price of a new home sold in September declined by 9.1% from a year ago to $218,400 -- the lowest level since September 2004, when the five-year housing boom was accelerating.

Despite the gain from August, the sales rate was still down 33.1% from a year ago.

Regionally last month, new-home sales were up 22.7% in the West, down 21.4% in the Northeast, down 5.8% in the Midwest and up 0.7% in the South.

The gain mirrors a report last week that the sales of existing homes rose in September by 5.5%, the largest monthly gain in more than five years. The report jumped as lenders aggressively cut prices on homes acquired in foreclosures.

Nonetheless, homebuilding shares were rallying. Ryland (RYL, news, msgs) was up 1.5% to $16.10. Pulte Homes (PHM, news, msgs) was up 5.8% to $8.99. So, too, were home improvement retailers Home Depot (HD, news, msgs), up 4.6% to $19.36, and Lowe's (LOW, news, msgs), up 2.9% to $17.70.

Worldwide turmoil continues

Asian and European markets fell today amid continued worries about a worldwide recession.

That was a huge disappointment for many traders.

"After last week's turmoil in equity markets, many had been hoping that the new week would bring about a degree of stability, but at least so far there's little to suggest this will be the case," said Matt Buckland, a trader with the London brokerage CMC Markets.

In Asia, stocks were mostly lower. Japan's Nikkei 225 Index ($N225) fell 6.4% to 7,163 -- a 26-year low -- and Hong Kong's Hang Seng Index ($HSI.X) plunged 12.7% to 11,016, its lowest level since May 2004.

South Korea's Composite Stock Price Index managed to close up 0.8% after the South Korean central bank cut interest rates by three-quarters of a percentage point to 4.25%, its biggest cut ever.

European stocks pulled off earlier lows. London's FTSE 100 Index ($GB:UKX, news, msgs) was up 0.2%, and the Paris CAC 40 Index ($FR:PX1) was down 2.3%. The broader Dow Jones Stoxx 600 Index was down 1%.

United Kingdom Chancellor of the Exchequer Alistair Darling said that Britain's economic situation is worse than originally thought, according to the Sunday Times.

Prime Minister Gordon Brown and Bank of England Gov. Mervyn King last week said Britain was heading toward recession.

This morning, European Central Bank President Jean-Claude Trichet hinted that the central bank could cut rates at its Nov. 6 meeting.

Fed may cut rates

The Federal Reserve will likely take yet another step to try to prevent a lasting recession by cutting interest rates at the Federal Open Market Committee meeting this week.

Economists expect the Fed to lower the federal funds rate -- the rate banks charge each other for loans -- to 1% from 1.5%. The Fed has been lowering interest rates over the past year in an effort to reboot the economy; the central bank has cut rates seven times since September 2007, when the fed funds rate was 5.25%.

"The combination of what is now a global recession and a still-fragile banking sector will lead the Fed to cut the funds rate," Richard Moody, chief economist at Mission Residential, told MarketWatch.com.

The last time the federal funds rate was at 1% was between June 2003 and June 2004.

Consumers saving more at the pump

As crude has come down, so have pump prices.

The Lundberg Survey, a separate survey of 5,000 service stations around the country, said the average price of gas was $2.78 a gallon, down from $3.31 on Oct. 10

The steep decline -- 53 cents in two weeks -- was the biggest two-week drop in the Lundberg Survey's 60-year history.

AAA's daily Fuel Gauge report put the average price of regular unleaded gasoline tumbled to $2.668 a gallon today. That's down 3 cents from Sunday and down 35% from the survey's record high of $4.114 a gallon on July 17.

G7 concerned about yen

As global financial turmoil has exploded, investors have fled to two safe havens: the dollar and, especially, the Japanese yen.

The yen's rise is startling: 7% against the dollar last week and nearly 12% in October alone. That spells disaster for Japanese industries that rely heavily on exports. Late Sunday, the Group of Seven major industrialized nations issued a cautionary statement about the yen.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," G7 finance ministers and central bank chiefs said in a statement. "We will continue to monitor markets closely and cooperate as appropriate."

Perhaps the statement is working. The dollar was at 93.47 yen, up 0.9% from Friday when it was at 92.62. It hit as low as 94.32, a 13-year low against the Japanese currency.

"A warning salvo has been fired," wrote Patrick Bennett, a foreign-exchange and rates strategist with Societe Generale in Hong Kong. "The warnings should permit some degree of calm to develop, but cannot in and of themselves reverse the de-leveraging flow that are the drivers of the moves in the first place."

The Group of Seven includes the United States, Japan, Germany, France, Great Britain, Canada and Italy.

GDP expected to contract

The Commerce Department is expected to report on Thursday that the U.S. economy contracted in the third quarter.

Economists expect a 0.5% decline in gross domestic product, the biggest drop since the 2001 recession. Consumer spending, which makes up about two-thirds of the economy, is expected to shrink by 2.4%, the first decline in nearly 20 years. Consumers have been slammed by the financial turmoil in the stock markets, mounting job losses, soaring food prices and plummeting housing prices.

• Read more:Retailers face not-so-happy holidays

"I don't see how the consumer can do anything but retrench," Robert McTeer, former president of the Fed Bank of Dallas, told Bloomberg Television last week. "If they all do it at the same time, it will really tank the economy."

The economy grew at a 2.8% rate in the second quarter of 2008.

GDP has not fallen since the fourth quarter of 2007, when it contracted by 0.2%.

Job cuts coming at GE

General Electric (GE, news, msgs) is the latest company preparing to eliminate jobs to try to control costs and weather the economic slowdown.

In an interview with The Wall Street Journal, GE Chief Executive Officer Jeff Immelt said that "costs will be lower in 2009 than in 2008," adding that employment will be lower as well. Immelt did not give any specifics, however.

GE shares were up 5.1% to $18.74.